Range-based multivariate volatility model with double smooth transition in conditional correlation |
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Authors: | Ray Yeutien Chou Yijie Cai |
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Affiliation: | aInstitute of Economics, Academia Sinica, National ChiaoTung University, Taiwan;bJinhe Center for Economic Research, Xi'an Jiaotong University, China |
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Abstract: | This paper proposes a multivariate model named Double Smooth Transition Conditional Correlation Conditional Autoregressive Range (DSTCC-CARR for short). Determined by two transition variables, the correlations smoothly transit from one state to another. Together with the DSTCC-GARCH model, the model is employed to investigate the interdependence between Hong Kong's and international stock markets. It is proved by the empirical analysis that the DSTCC-CARR model is more credible and efficient than the DSTCC-GARCH model. Linkages among Hong Kong's and other world's markets captured by these two models are testified to be consistent with history, and have meaningful interpretations. |
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Keywords: | Multivariate volatility CARR Smooth transition GARCH |
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